A gain of 30.43% in 2019 for shares of Mastercard Incorporated (MA) tells a story of a stock gaining alongside a high amount of unusual trading activity. It's bullish activity because the shares are heading higher on increasing volumes, indicating that a buyer is involved.

I actually wrote a post about Mastercard back in September, which you can read here. Basically, the activity I was seeing then is happening now. Over time, we've learned how stocks with a history or strong fundamentals tend to rise in price. Smart money managers are always looking to bet on the next outlier stocks … the best in class.

The main criteria we look for when betting on upside in a stock bouncing after a period of pressure is a history of strong fundamentals, strong technicals and big potential buying in the shares. I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in the trading activity of the shares. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall.

For most of 2019, Mastercard has been in an uptrend accompanied by unusual buy signals. Many tech and payment stocks are showing similar activity, so we are confident that we are betting on a strong stock in a strong sector. It's all about stacking the odds in your favor.

For Mapsignals, when we look for an entry on a leading stock, we want to see an increase of potential buying. Just to show you graphically what our unusual trading activity signals look like, have a look at all of the unusual institutional (UI) signals Mastercard stock has made over the past year.

Beginning this year, there have been days when the shares appear to have had a buyer. This is notable because stocks move based on supply and demand. What is really catching our eye now is the recent UI buying. You can also see how 2018 showed a lot of buying prior to December's sell-off. Seeing a theme of bullish activity is very encouraging for further potential upside:

Chart showing the unusual institutional (UI) signals made by Mastercard Incorporated (MA)

In 2019, Mastercard stock has logged eight unusually high-volume days, indicative of buying in the shares starting on Jan. 31, 2019 (see chart above). This points to Mastercard stock gaining in an unusual way, which suggests that demand for the shares is increasing.

If you are going to make a bet on the direction of the stock, it is prudent to pay attention to how the shares are trading. Just like you don't want to fight the trend, you also don't want to fight a stock that shows increasing price alongside an increase in the volume traded. Someone could potentially be accumulating a position.

Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

When we decide on a strong candidate, we consider prior leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. Below are a few areas in which Mastercard stock has grabbed our attention year to date (YTD):

  • YTD outperformance vs. S&P 500: +12.99% vs. SPDR S&P 500 ETF (SPY)
  • YTD outperformance vs. the tech sector: +2.76% vs. Technology Select Sector SPDR Fund (XLK)
  • Recent bullish unusual trading signals

Now, we take it a step further and score the best stocks showing unusual trading activity. Below you can see the historical times since 2016 when Mastercard stock made the top 20 report for Mapsignals. These are the highest-rated signals in our stock universe. Clearly, we caught the big run-up beginning in 2016. That's exactly what our process is designed to do. We'd even venture to call this stock an outlier:

Chart showing the top-rated buy signals made by Mastercard Incorporated (MA)

On top of a technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Mastercard has shown year-over-year (YoY) growth:

  • Q4 2018 YoY revenue growth rate: +15%
  • Q4 2018 YoY net income growth rate: +296%

Mastercard is breaking out recently on increasing volumes. We believe that the current level for the shares is in position for further upside. The narrative for Mastercard and other payment companies is one with a growing marketplace. We are always on the lookout for great companies showing unusual trading activity in the shares. The best companies tend to trend higher over the long run. All of this points to a long-term opportunity for the stock.

The Bottom Line

Mastercard stock represents a potential buying opportunity for the long-term investor. Given the lift in price, growing fundamentals and recent unusual buying signals, this stock could be worth a spot in a growth-oriented portfolio.

Disclosure: The author holds no position in Mastercard shares at the time of publication.

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